JER Companies (including JER Partners and JER Investors Trust)
|Founded:||1981 by Joseph Robert. JER Partners, the private equity real estate management arm|
|was founded in 1997. JER Investors Trust, a private REIT focused on structured|
|finance products, was launched in 2004.|
|Assets under management:||$9 billion (€5.73 billion)|
|Capital raised since inception:||$4.5 billion (€2.87 billion)|
|Latest real estate funds:||JER Partners IV, which closed on $772 million (€500 million) in March 2008, and|
|JER Europe Fund III, which closed in June 2007 on €809 million ($1.25 billion)|
|$256 million co-investment capital was also added to JER Partners IV.|
|Strategy:||Increasing focus on emerging markets and mispriced real estate opportunities in|
|the US. In Japan, investments are expected to focus on the growing urbanization|
|of secondary cities as people move back to the centers. Residential will be the|
|key focus in Egypt owing to a growing middle class. With new offices in Mexico|
|and Brazil, and expansions at their London and New York office, JER will seek|
|to tap into, and boost activities in, the Latin American, US and European real|
Restructuring and transforming
JER was already halfway through its restructuring plan when Pralle joined, but many acknowledge the impetus created by the 18-year GE veteran will ensure the firm – which encompasses the private equity real estate management arm, JER Partners, and the private REIT, JER Investors Trust – soon rivals much larger private equity real estate firms.
Founded in 1981 by Joseph Robert, JER Companies started life trading in non-performing commercial mortgages and underperforming real estate assets. By the late 1980s and early 1990s, JER had made a name for itself during the savings and loan and RTC crises. By 1997, JER Partners had been launched with its first fund raising $435 million (€281 million) in capital commitments. Within the space of a decade, JER had raised ten times as much capital ranking the McLean, Virginia-based company as the 21st largest private equity real estate firm in the world, according to the PERE 30 list published by this magazine last month.
Pralle, though is not content with 21st place. He wants to be in the top 10 at least and has already started planning a significant expansion of JER's existing presence in Latin America, Russia, the US and Europe as well as starting to look at investments in China, Japan, India, the Middle East, Central and Eastern Europe and in North African countries such as Tunisia, Morocco and Egypt.
He is going, he says, where the investors want him to. “If you look at a lot of the biggest US pension funds and the big European financial institutions, our research suggests that their asset allocations are moving more towards being outside the US than within. Quite simply let's go to where investors want us to invest.”
In turn, JER is set to transform its capital-raising operations over the coming years, with Pralle expecting assets under management – currently $9 billion – to triple within five years. “We are going to need to raise a significant amount of capital over next few years given our strategic objectives,” he explains.
JER, he continues, will ultimately rival the likes of Tishman Speyer and Carlyle – numbers three and seven on the PERE 30 respectively. “We are building a professional capital-raising organization to [achieve our growth plans] – in effect, a capital-raising machine in the way that Tishman Speyer has today or Carlyle has today. JER has done very well on capital-raising but it has never had the kind of resources that Carlyle or Tishman Speyer have allocated to them.”
Pralle's approach to investing will not deviate from JER's own history: Active asset management or, according to Pralle, the “old-fashioned way” to make money in real estate. “That's the way people made money in real estate pretty much over the last 50 years.”
Instead of relying on cap-rate compressions, leverage or splitting up and selling parts of a real estate portfolio, Pralle sees JER generating greater returns by being a hands-on asset manager, particularly in the emerging markets.
Pralle also sees JER's diversification as a free-lunch way to strengthen the franchises. “Real estate is inherently a cyclical business,” he says. “Always has been, always will be. I knew eventually it was going to slow down and it was going to change and it's happening now. In a cyclical business you want to be diversified, you want to be diversified by product type and be diversified by geography.”
Pralle's goal though is to see, large institutional investors automatically “think of JER” when they go looking for emerging market investment managers.
Michael PrallePresident and chief operating officerJER CompaniesJoined JER:October 2007Prior career:2000-2007: President and CEO of GE Real Estate2000-1996: President of GE Equity, responsible for equity, preferred stock andconvertible debt investments in the US, Europe and Asia1993-1996: President GE Capital Asia Pacific, where he supervised GE Capital'sactivities in 15 countries across North and Southeast Asia.1989: Joined GE Capital as vice president of business development1983-1989: Joined management consultants McKinsey and Co. working in theirLondon and Hong Kong offices.Education:1982: MBA from Stanford Graduate School of Business, where he was awarded anArthur D Little Fellowship1978: BA in Economics from Harvard University, magna cum laudeInterests:Cycling, especially in the south of France, although he admits, “I'm mediocre at alot of sports.”